Chancellor John Healey has told every government department to find 1% cuts in their capital budgets to fill a £4.7bn hole in the funding of the Defence Investment Plan.
The reductions come on top of the 1% cuts departments were asked to make earlier this year in order to pay for the initial £10.3bn of the plan’s overall £15bn price tag.
The plan boosted defence spending; however the chancellor continues to come under pressure to explain how he will meet a further target of spending 3% of national income on defence by 2030.
Conservative leader Kemi Badenoch accused the chancellor of only offering “a plan to have a plan” adding: “I bet [Vladimir] Putin’s really scared now.”
Setting out his Budget, Healey hinted that meeting that goal would require further cuts, telling MPs it would involve “looking hard at public spending”.
He said he would set out how the UK would reach the 3% target by 2030, as well as 3.5% of GDP by 2035, at next year’s spending review.
Government departments have yet to decide what will be cut from their capital budgets.
Capital budgets are focused on long-term investments, rather than day-to-day spending. For example, earlier this year, when departments had to make capital budget cuts to fund the initial defence spending rise, a number of major road improvement schemes were scrapped.
Badenoch criticised Healey for not using his Budget to explain how he would boost defence funding to 3%.
“He is the man who is making our country less safe. He has failed his own test. This is on him, and no one will ever forget,” she said.
The Conservatives have previously urged the government to pay for defence by making cuts to the welfare budget.
Nato Secretary General Mark Rutte said the UK was on “a credible path towards meeting the commitment made by all Nato Allies in The Hague – to ensure we’re all investing what’s needed to remain ready & able to deter aggression and defend our freedom and security”.
Chair of the Commons defence committee – and Labour MP – Tan Dhesi said “some of the key decisions on defence spending have lamentably been delayed until next year’s spending review”.
He added: “There is a cost to inaction. Investment in our nation’s defence and security cannot be kicked into the long grass.”
Earlier this year, Healey resigned as defence secretary, accusing the then-Prime Minister Sir Keir Starmer of not providing enough money to keep the UK safe.
In a scathing resignation letter, he specifically emphasised his belief in the importance of reaching a 3% target by 2030.
Now chancellor, Healey told the House of Commons on Wednesday: “At the spending review next year, I confirm that I will set out the details of how we will meet our NATO commitment to spend 3.5% of GDP on defence by 2035, with a target date for 3% in 2030.
“And today, I am getting work under way to get there in a fiscally sustainable way.”
In addition to looking at public spending, Healey said he also wanted to use “more innovative financing alongside the private sector and our international allies”.
The chancellor said this would include:
starting treaty negotiations with Finland, Poland and Netherlands to set up a “multilateral defence mechanism” which would allow allies to share resources
increasing the amount of private investment in defence through public-private partnerships
directing the National Wealth Fund and British Business Bank to put £5bn into “defence, dual-use technology and sovereign capability”
The Office for Budget Responsibility estimates that the UK government’s target to increase defence spending to 3.5% of GDP by 2035 will cost £35bn.
Helen Millier, director of the Institute for Fiscal Studies, said: “Increasing investment in defence companies may contribute to the target but it is unclear how much this will lead to an increase in UK defence capabilities.
“There is much further to go to get to 3% of GDP on defence and it is hard to believe that this government will want to get there without topping up spending totals.”
